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Weekend Comment Nov 11: More wild rides with Italy as Europe's new worry
JUST WHEN IT seems that some semblance of normalcy has returned to stock markets after the massive selloff in August and September, fears over the debt debacle in the euro zone have once again cast a pall over investors.
The MSCI World Index rose 10.3% in October after declining 15.5% in the previous two months. But markets worldwide suffered another bout of haemorrhaging this week, the sharpest pullback so far this quarter, as the prospect of Italy becoming the new centre of concern -- after Greece -- in the debt crisis send investors rushing for the exit.
The trigger was a surge in Italy’s bond yields past 7%. Greece, Portugal and Ireland required bailouts when interest rates on their bonds headed past that level. Naturally, investors took the spike in Italy’s borrowing costs as a cue that Europe’s third-largest economy might have to secure a life line to prevent a default by the government on its loans.
Major stock indexes in Europe declined more than 2% on Nov 9, while the Dow Jones Industrial Average lost 3.2%, its biggest single-session fall since Sep 22. Bourses in Asia tanked the day after, led by Hong Kong. Here in Singapore, the Straits Times Index pulled back 2.5%.
While markets rebounded slightly at the end of the week, visibility in the near term is expected to be clouded. Despite a successful bond sale by Italy on Nov 10, which enabled it to borrow €5 billion ($8.8 billion) at rates lower than analysts had expected, and Greece installing a new prime minister to lead the rebuilding of its economy, investors are likely to tread ever more carefully until they see evidence of progress in the euro zone.
According to Morgan Stanley, markets will likely shift their focus from sovereign risks in Europe to earnings risks in the next few quarters. Within Southeast Asian markets, it notes that Singapore faces the highest earnings risks given its linkages to the more-vulnerable developed world.
“We recommend investors sell the recent bounce,” says Morgan Stanley. “We continue to be ‘overweight’ telecom and bank stocks in Singapore as these are likely to be relatively defensive in these potentially volatile markets.”
Amid the uncertainties, though, other broking houses have picked out stocks in Singapore they think investors should start collecting.
“We are probably too early to call a bottom, but neither is the current inflationary environment conducive for staying in cash for too long. It is in this spirit that we recommend our ‘crisis recovery’ stocks,” says Kim Eng Securities. A “convincing indicator” of when value has emerged is when insiders, particularly executives running the business or major shareholders, start using their own money to buy back shares of their company, it adds.
Stocks in Kim Eng’s recovery portfolio comprise CapitaLand, DBS Group Holdings, Genting Singapore, Keppel Corp, Noble Group, Sembcorp Marine, Singapore Airlines, Singapore Exchange and Venture Corp.
The broking house has also recommended both an entry price and a floor price in a worst-case scenario for each of these counters -- $2.30 and $1.97 respectively for CapitaLand, $10.20 and $7.70 for DBS, $6.39 and $5.60 for Keppel, $1.25 and $0.50 for Noble, $3.50 and $3.00 for SembMarine, $5.85 and $4.00 for SGX, and $5.25 and $4.42 for Venture. Its proposed entry and floor prices are similar for both Genting and SIA, at $1.00 and $9.50 respectively.
Meanwhile, CLSA has identified Genting, Fraser & Neave, Keppel, Wilmar International and United Overseas Bank as stocks to own for the next five years. Of the companies in Singapore with a market value of more than US$2 billion ($2.6 billion) and a daily trading volume worth more than US$4 million, the five were selected based on a quantitative analysis of their revenue growth, margin stability and/or improvement, dividend payout, return on equity/capital, and earnings volatility. CLSA also took into account sector trends and dynamics over the next five years in picking these stocks.
Sembcorp Marine rated 'buy' by Kim Eng
Kim Eng Research in a Nov 4 research report says: " Sembcorp Marine (SMM) posted 3Q11 net profit $222.5 million, down 25% versus a bumper 3Q10. This is in line with expectations. While 3Q11 revenue grew by 16.8% y-o-y to $1,302.3 million, the divergence was due to the difference in revenue recognition on a specific project.
" There were no major surprises with the group delivering exactly as expected. SMM has secured US$2.6 billion worth of contracts YTD with most being jackup orders. Net orderbook stands at around US$4.2 billion, with deliveries up to 2014.
" Our forecasts are only being adjusted for the $54.4 million tax refund due to the favourable tax assessment from the disputed foreign exchange transactions losses in FY2009 and FY2010. SOTP-based target price of $4.95, with the core shipyard operations valued at just 13x FY12F earnings. MAINTAIN BUY."
BAD NEWS - some16 options may expire end-Dec, worth ~US$4Billion to SembMarine & Kepcorp altogether. Hence, Sembmarine will be worse hit bcos YTD orders secured is relatively low vis-a-vis Kepcorp.
Sembmarine's 8 options outstanding : Seadrill (4), Atwood (2), Noble (2).
KepCorp's 8 options outstanding : Mermaid (1), Hercules (2), Ensco (1), Maersk (1), Transocean (2), Dynamic Offshore (1).
krisluke ( Date: 11-Nov-2011 22:22) Posted:
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Need to wait' long long,' Option given to Keppel first lah. This marine no fight lah, ...last bid even lower by $150 million also can't get , this time how low can it lower? " wait for next year $2.80 '" than consider lah...
exercise of rig options this NOV ? ??
[Trading Central] Sembcorp Marine: continuation of the rebound.
Pivot: 3.73
Our preference: Long positions above 3.73 with targets @ 4.36 & 4.8 in extension.
Alternative scenario: Below 3.73 look for further downside with 3.05 & 2.5 as targets.
Comment: the RSI is bullish and calls for further upside.
Key levels
5.03
4.8
4.36
3.99 last
3.73
3.05
2.5
Double-top. Foresee more down side ahead.
Range bound trading by open and close price PLUS volume
I think it either break up or down
50% fundamental news beat analysts expectation namely goldman sach
50% subjected to economic news such as china interest rate and euro debt issues
Let's see how liao...
nb: $4.00 is a pyschological support.... I thimk.
sembmar result surprise most of the street brokerage namely goldman sach
I think tmr shld be good
BUT....
Do watch china CPI on wednesday.
critical resistance $4.22 (short term)
Do watch $4.28 for more upside ... ...
Pivot: 18650
Our preference: Long positions above 18650 with targets @ 20900 & 21500 in extension.
Alternative scenario: Below 18650 look for further downside with 17800 & 17200 as targets.
Comment: the RSI broke above a bearish trend line.
Key levels
22000
21500
20900
19677.89 last
18650
17800
17200
Wow !! 20days sma cross 50 days sma
Watch resistance at 100 days sma
200 days sma cross over , bullish trend liao
On Friday, Sembmar broke the resistance at $4.15 and closed at $4.17 with LOW volume of 8.22 million shares traded.
A rising window occurred (where the top of the previous shadow is below the bottom of the current shadow). This usually implies a continuation of a bullish trend. There have been 8 rising windows in the last 50 candles–this makes the current rising window even more bullish.
Both RSI & MACD are flat as RSI trend sideway.
Important Resistance of Sembmar: $4.53
Immediate Support of Sembmar: $4.15
Currently prices are resisted by 100 days MA.
Although prices broke the resistance at .................. READ MORE
Sembcorp Marine by Goldman Sex
Sembcorp Marine (SCMN.SI)
Sembcorp Marine (SCMN.SI)
Neutral Equity Research
In line with expectations: Mixed takeaways maintain Neutral
12 month target - 4.00
What surprised us
Core 9M11 net profit, excluding the one-off interest income (adjusted for tax and
MI) on deferred payments from the Songa Eclipse project, came in at S$488mn.
This makes up 75%/70% of our/Bloomberg 2011 forecasts. While this is in line
with our estimate, it may be lower than consensus. Positives takeaways: (1) 3Q
semisub enquiry levels appear to have improved from 2Q (2) a special dividend
is likely in 2011, in our view, especially given the one-off gains (~S$43mn
interest income in 3Q and ~S$54mn tax refund from IRAS expected in 4Q).
SMM paid S$0.25 of special dividend (full-year dividend S$0.36) in 2010 and (3)
no option cancellations in 3Q, which is better than what Keppel (KPLM.SI,
Neutral, S$9.20) experienced in the same period. Negative takeaways: (1) We
see downside risk to EBIT margin from 4Q11 (SMM guiding for 15%-18% in
2011 (9M11 was 18%) and 12%-15% post 2011) and (2) full-year revenues
(previously guided to be similar to 2010) may fall short of expectations, per the
company. We think revenue recognition on post-crisis jack-up orders – difficult
to forecast, in our view – may occur later rather than sooner. Overall, we see the
results/guidance as mixed.
What to do with the stock
Maintain Neutral. We lower our core 2011E-2013E EPS by 1.5%-1.8%,
mainly to incorporate slightly lower 2011-13E EBIT margins, given the
latest guidance. As such, our 12m Director’s Cut-derived TP is now S$4.00
(from S$4.05).
Key risks: 1) stronger-/weaker-than-expected macro
conditions 2) sudden relaxation/tightening of financing conditions 3)
lower-/higher-than-expected cost pressures and 4) faster-/slower-thanexpected
completion of its new Brazilian shipyard.
conditions 2) sudden relaxation/tightening of financing conditions 3)
lower-/higher-than-expected cost pressures and 4) faster-/slower-thanexpected
completion of its new Brazilian shipyard.
Sembcorp Marine by BNP
Target price 4.74
As good as expected
CHANGE
3Q11 numbers in line with our expectations
Sembcorp Marine (SMM) reported a 16.8% y-y increase in turnover to
SGD1.3b, due mainly to resumption of Songa Eclipse recognition, but a
24.8% y-y decline in recurring NP to SGD222.5m (due to CJ-70 recognition
in 3Q10) vs our estimate of SGD221.7m. Excluding these, NP was -8.6%
y-y in 3Q and -8% y-y in 9M on higher consumption of post-crisis orders.
CATALYST
New order guidance substantially higher we were expecting
Other than the extension of the Atwood option, two of eight outstanding
options will expire at YE. With YTD new orders of SGD3.2b, in line with
our estimate, SMM retained its 2011 guidance of SGD4b-5b, as customer
financing came from the US. If the press report on Petrobras’ six-drillship
order is correct, we expect FY12 total orders to exceed the 2008 peak.
VALUATION
Valuation to track oil price outlook, on which we remain positive
We expect OPM to dip from 18% in FY11 to 16.4% in FY12, and sequential
NP growth to decline. However, we expect valuation to track the oil price
and order momentum, which looks to be supported by sustainable E& P
budget and Petrobras (PETR3 BZ, NR) order in the near term. We maintain
BUY. Risks to our TP are: liquidity drains and oil price uncertainty.
COMMENT
Lower margin an industry-wide phenomenon going forward
SMM expects to close the year with 15-18% OPM and says the margin for
new-builds has fallen to 12-15% now. It maintains upbeat guidance, given
strong enquiry levels in semis, fixed platform, and conversion units and
expects ex-Petrobras orders to be evenly spread across segments. Margin
for new-build rig units tends to trace behind those for repair/conversion,
and SMM expects its new Jurong yard to start in 2014, driving up repair
revenue and offsetting falling rig margin. Progress billing for 9M exceeds
WIP by SGD422m and capex is within budget of SGD300m-400m pa. With
SGD1.9b net cash (zero debt), it is hard to rule out a special div. We think
Petrobras order will open roads for drillship operations for SMM. BUY.
Sembcorp Marine
Maintain NEUTRAL
3Q11 results in line, boosted by Songa Eclipse rig
EPS: ▼ TP: ◄ ►
Gerald Wong / Research Analyst / 65 6212 3037 / gerald.wong@credit-suisse.com
Christopher Chang / Research Analyst / 65 6212 3024 / christopher.chang@credit-suisse.com
● Sembcorp Marine’s 3Q11 net profit of S$223 mn was slightly
lower than our S$242 mn forecast but above market expectation
of S$182 mn. 9M11 revenue of S$3 bn was 69% of our FY11
estimate as only one more jackup rig achieved revenue
recognition in 3Q11. As expected, operating margin declined
sequentially in 3Q11 to 16.2% from 19.1% in 2Q11.
● The resumption of profit recognition for the Songa Eclipse rig is
estimated to contribute S$540 mn of revenue and S$92 mn of
operating profit in 3Q11. Excluding the rig, 3Q11 revenue would
be c.S$760 mn and operating profit c.S$120 mn (15.8% margin).
● Management maintained its guidance of S$4-S$5 bn of orders for
2011 (excluding Petrobras), noting that enquiries across all
segments remain strong The company has secured S$3.2 bn of
orders YTD, representing 80% of our S$4 bn forecast.
● We reduce our 2011 EPS by 5% but increase our 2012 EPS by
3% as we push back revenue recognition. At 2012E P/E of 13.4x,
Sembcorp Marine is trading in line with its historical average.
Maintain NEUTRAL and a target price of S$4.00.
3Q11 results above consensus, in line with our forecasts
Sembcorp Marine’s 9M11 revenue of S$3 bn was 69% of our FY11
estimate. Revenue was below our expectation as only one jackup rig
secured since 4Q10 reached the revenue recognition stage in 3Q11.
In line with our expectations, operating margin declined sequentially in
3Q11 to 16.2% from 19.1% in 2Q11. Based on our estimates, the
Songa Eclipse rig contributed S$540 mn of revenue and S$92 mn of
operating profit. Excluding the rig, 3Q11 revenue would be cS$760 mn
and operating profit cS$120mn (15.8% margin). 9M11 net profit of
S$296 mn was 76% of our FY11 forecasts, as the company received
a S$47 mn interest income for deferred payment granted to customer
for the Songa Eclipse rig.
Deutsche Bank on Sembcorp Marine
Price target - 12mth (SGD) 5.80
3Q11 results contract timing
issues and lumpiness
9M11 results affected by timing issues from new contracts
Sembcorp (SMM) reported 9M11 results with revenues declining 17% yoy to
S$2,963m, while net income was down 16% yoy to S$523m (9M11 PATMI was
70% of our FY11E 9M10 was 72% of FY10A). The results were affected as nine
out of thirteen jackups secured since 4Q10 are still at the planning stage. We have
slightly lowered our earnings estimates and target price but are maintaining our
Buy rating on SMM's strong positioning and the healthy industry prospects.
Tough yoy comparisons due largely to outsized benefits in 3Q10
While the headline earnings decline for SMM may appear alarming, this yoy fall is
largely due to outsized benefits in 3Q10 which saw more turnkey semisub
projects, the resumption of revenue recognition of semisub PetroRig III and the
sale of CJ-70 harsh-environment jackup rig. In 3Q11, only one semisub, the Songa
Eclipse, experienced revenue recognition upon delivery, while nine new jackup
contracts were still at the planning stage (no revenue recognition to date).
Healthy prospects in O& M YTD new orders of S$3.2b
Long-term prospects appear strong for SMM with some easing in credit
conditions, continued interest in high-spec offshore rigs, and potential rig/FPSO
orders from Petrobras. YTD, the group has secured S$3.2bn in new orders (SMM
guides S$4-5bn in FY11 vs. our estimate of S$4.3bn) and it has a net order book of
S$5.2bn with deliveries until 2Q14. SMM highlighted that medium- to long-term
prospects for offshore oil and gas remain intact and customer enquiries healthy.
Maintaining Buy SMM looks well positioned
We believe SMM looks well positioned to benefit from any upgrade, replacement
or new-build opportunities in the O& M sector. Our SOTP-based target price is
S$5.80. We use DCF for SMM’s O& M business (rf: 2.5%, rp: 4.5%, COE: 8.4%,
WACC: 7.3%, and g: 2%), and market/implied values for Cosco under the SOTP
method. Downside risks: project execution risks, forex volatility and a sustained
fall in oil prices, which could affect E& P spending
3Q11 results review
Timing issues and lumpiness
SMM's 9M11 revenues declined 17% yoy to S$2,963m, while net income was down 16%
yoy to S$523m (9M11 PATMI was 70% of our FY11E 9M10 was 72% of FY10A). The
group’s revenues were impacted by a 33% yoy decline in rig building revenues which was
offset to an extent by a 27% yoy increase in offshore and conversion revenues. The group
highlighted that nine of the thirteen new jackup rigs secured since 4Q10 are still in the
planning stage (with no revenue recognition to date).
SMM’s EBITDA margin remained flat in 9M11 at 20% (vs. 9M10). While the headline
earnings decline for SMM may appear alarming, this yoy fall is largely due to outsized
benefits to 3Q10 which saw more turnkey semisub projects, the resumption of revenue
recognition of semisub PetroRig III, the sale of CJ-70 harsh environment jackup rig, and the
receipt on the full and final settlement of the disputed foreign exchange transactions with
Societe Generale in 3Q10.
New order momentum
YTD, SMM has secured S$3.2bn in new contracts and the group currently has a net order
book of S$5.2bn with deliveries until 2Q14. Despite the weak macroeconomic environment,
SMM believes that medium- to long-term prospects for offshore oil and gas remain intact.
Demand for fixed platforms and FPSOs is expected to be strong as more projects move
toward development phase. The company highlighted that customer enquiries remain healthy
but competition is intense. Within the group’s YTD wins of S$3.2bn, it has a total of five
jackup rig orders and one harsh environment CJ-70 jackup rig worth S$1.9bn. This excludes
options for an additional 8 jackup rigs. Ship conversion and offshore projects secured in 2011
YTD stands at S$1.3bn with ship conversion/offshore projects at S$523m and offshore
platform/LNG at S$780m.
In light of the group’s relatively slow new order intake to date, we have lowered our new
order estimates as follows: FY11E (from S$4.5bn to S$4.3bn), FY12E (from S$6.2bn to
S$5.8bn), FY13E (from S$6.7bn to S$6.0bn).
Valuation and risks
Valuation
Our target price is SOTP-based. We value SMM's O& M business through DCF. Our DCF
assumptions are as follows: rf: 2.5%, rp: 4.5%, g: 2% (based on our conservative view of LT
growth rate), COE: 8.4%, and WACC: 7.3%. For the group's other components in Cosco, we
have used the market value for its direct stake in listed COS and derived an implied value for
the unlisted Cosco Shipyard Group (CSG) based on the market value for COS (the bulk of the
value for COS is derived from CSG). At our target price, SMM should trade at 16.4x FY12E
PER, which is above its long-term historical average of 13.6x (high: 29.7x low: 3.8x), and we
feel justified due to its strong execution track record, established reputation and the healthy
O& M sector.
Risks
1) A significant slowdown in the global economy would reduce demand for oil and thereby
appetite for new drilling and production capex 2) Cost overruns could hurt margins and
earnings. 3) SMM's revenues are in US$, hence exposing the company to foreign currency
risks 4) Any problems in the shipbuilding industry could affect Cosco Corp., which would in
turn affect SMM. 5) A sustained decline in the price of oil.
Price target - 12mth (SGD) 5.80
3Q11 results contract timing
issues and lumpiness
9M11 results affected by timing issues from new contracts
Sembcorp (SMM) reported 9M11 results with revenues declining 17% yoy to
S$2,963m, while net income was down 16% yoy to S$523m (9M11 PATMI was
70% of our FY11E 9M10 was 72% of FY10A). The results were affected as nine
out of thirteen jackups secured since 4Q10 are still at the planning stage. We have
slightly lowered our earnings estimates and target price but are maintaining our
Buy rating on SMM's strong positioning and the healthy industry prospects.
Tough yoy comparisons due largely to outsized benefits in 3Q10
While the headline earnings decline for SMM may appear alarming, this yoy fall is
largely due to outsized benefits in 3Q10 which saw more turnkey semisub
projects, the resumption of revenue recognition of semisub PetroRig III and the
sale of CJ-70 harsh-environment jackup rig. In 3Q11, only one semisub, the Songa
Eclipse, experienced revenue recognition upon delivery, while nine new jackup
contracts were still at the planning stage (no revenue recognition to date).
Healthy prospects in O& M YTD new orders of S$3.2b
Long-term prospects appear strong for SMM with some easing in credit
conditions, continued interest in high-spec offshore rigs, and potential rig/FPSO
orders from Petrobras. YTD, the group has secured S$3.2bn in new orders (SMM
guides S$4-5bn in FY11 vs. our estimate of S$4.3bn) and it has a net order book of
S$5.2bn with deliveries until 2Q14. SMM highlighted that medium- to long-term
prospects for offshore oil and gas remain intact and customer enquiries healthy.
Maintaining Buy SMM looks well positioned
We believe SMM looks well positioned to benefit from any upgrade, replacement
or new-build opportunities in the O& M sector. Our SOTP-based target price is
S$5.80. We use DCF for SMM’s O& M business (rf: 2.5%, rp: 4.5%, COE: 8.4%,
WACC: 7.3%, and g: 2%), and market/implied values for Cosco under the SOTP
method. Downside risks: project execution risks, forex volatility and a sustained
fall in oil prices, which could affect E& P spending
3Q11 results review
Timing issues and lumpiness
SMM's 9M11 revenues declined 17% yoy to S$2,963m, while net income was down 16%
yoy to S$523m (9M11 PATMI was 70% of our FY11E 9M10 was 72% of FY10A). The
group’s revenues were impacted by a 33% yoy decline in rig building revenues which was
offset to an extent by a 27% yoy increase in offshore and conversion revenues. The group
highlighted that nine of the thirteen new jackup rigs secured since 4Q10 are still in the
planning stage (with no revenue recognition to date).
SMM’s EBITDA margin remained flat in 9M11 at 20% (vs. 9M10). While the headline
earnings decline for SMM may appear alarming, this yoy fall is largely due to outsized
benefits to 3Q10 which saw more turnkey semisub projects, the resumption of revenue
recognition of semisub PetroRig III, the sale of CJ-70 harsh environment jackup rig, and the
receipt on the full and final settlement of the disputed foreign exchange transactions with
Societe Generale in 3Q10.
New order momentum
YTD, SMM has secured S$3.2bn in new contracts and the group currently has a net order
book of S$5.2bn with deliveries until 2Q14. Despite the weak macroeconomic environment,
SMM believes that medium- to long-term prospects for offshore oil and gas remain intact.
Demand for fixed platforms and FPSOs is expected to be strong as more projects move
toward development phase. The company highlighted that customer enquiries remain healthy
but competition is intense. Within the group’s YTD wins of S$3.2bn, it has a total of five
jackup rig orders and one harsh environment CJ-70 jackup rig worth S$1.9bn. This excludes
options for an additional 8 jackup rigs. Ship conversion and offshore projects secured in 2011
YTD stands at S$1.3bn with ship conversion/offshore projects at S$523m and offshore
platform/LNG at S$780m.
In light of the group’s relatively slow new order intake to date, we have lowered our new
order estimates as follows: FY11E (from S$4.5bn to S$4.3bn), FY12E (from S$6.2bn to
S$5.8bn), FY13E (from S$6.7bn to S$6.0bn).
Valuation and risks
Valuation
Our target price is SOTP-based. We value SMM's O& M business through DCF. Our DCF
assumptions are as follows: rf: 2.5%, rp: 4.5%, g: 2% (based on our conservative view of LT
growth rate), COE: 8.4%, and WACC: 7.3%. For the group's other components in Cosco, we
have used the market value for its direct stake in listed COS and derived an implied value for
the unlisted Cosco Shipyard Group (CSG) based on the market value for COS (the bulk of the
value for COS is derived from CSG). At our target price, SMM should trade at 16.4x FY12E
PER, which is above its long-term historical average of 13.6x (high: 29.7x low: 3.8x), and we
feel justified due to its strong execution track record, established reputation and the healthy
O& M sector.
Risks
1) A significant slowdown in the global economy would reduce demand for oil and thereby
appetite for new drilling and production capex 2) Cost overruns could hurt margins and
earnings. 3) SMM's revenues are in US$, hence exposing the company to foreign currency
risks 4) Any problems in the shipbuilding industry could affect Cosco Corp., which would in
turn affect SMM. 5) A sustained decline in the price of oil.
UBS on Sembcorp Marine
12m price target S$4.50
Steady Q311 results
� � S$223m Q311 net profit is in line with our ests, ~14% above consensus
Operating margin fell 290bps QOQ to 16%, but was still within SMM’s reiterated
guidance of 15-18% for 2011E. Interest income surprised by +S$45m. This arose
from yard financing on the Songa Eclipse project, which featured a final payment
milestone of 70% in Q311. We see this as a robust set of results SMM is on track
to end 2011 strongly. However, our 2012/13 EPS estimates (16%-20% below
consensus) take into account a slower pace of contract wins due to global macro
challenges. As forward valuations in our view remain reasonable, we retain our
Buy rating.
� � YTD new orders of S$3.2bn, order book at end Q311 stood at S$5.2bn
About 74% of our 2012E net profit is backed by secured orders and regular work.
SMM is on track to meet our expectations of another S$630m orders by end 2011.
We see potential in FPSO conversions and topsides, fixed platforms, North Sea HE
jack ups and semisubs. However we believe near-term demand for (US$200m)
high spec jack up newbuilds has cooled and exercise of SMM’s 8 remaining jack
up options seems unlikely this year.
� � Special dividend potential
Our S$713m 2011E net profit estimate does not include a S$54m writeback
expected in Q411. Given SMM’s track record of generous special dividends and
ungeared balance sheet, we believe it has the muscle to return part of the tax
savings to shareholders. On a sensitivity analysis, we estimate a 50% payout ratio
would boost our DPS forecast by 1.3cts to 18.4cts and 4.5% net yield.
� � Valuation: $4.50 price target based on DCF assuming 7.6% COE, 3% g
We believe DCF is valid given SMM’s strong cash flow and generous dividends.
12m price target S$4.50
Steady Q311 results
� � S$223m Q311 net profit is in line with our ests, ~14% above consensus
Operating margin fell 290bps QOQ to 16%, but was still within SMM’s reiterated
guidance of 15-18% for 2011E. Interest income surprised by +S$45m. This arose
from yard financing on the Songa Eclipse project, which featured a final payment
milestone of 70% in Q311. We see this as a robust set of results SMM is on track
to end 2011 strongly. However, our 2012/13 EPS estimates (16%-20% below
consensus) take into account a slower pace of contract wins due to global macro
challenges. As forward valuations in our view remain reasonable, we retain our
Buy rating.
� � YTD new orders of S$3.2bn, order book at end Q311 stood at S$5.2bn
About 74% of our 2012E net profit is backed by secured orders and regular work.
SMM is on track to meet our expectations of another S$630m orders by end 2011.
We see potential in FPSO conversions and topsides, fixed platforms, North Sea HE
jack ups and semisubs. However we believe near-term demand for (US$200m)
high spec jack up newbuilds has cooled and exercise of SMM’s 8 remaining jack
up options seems unlikely this year.
� � Special dividend potential
Our S$713m 2011E net profit estimate does not include a S$54m writeback
expected in Q411. Given SMM’s track record of generous special dividends and
ungeared balance sheet, we believe it has the muscle to return part of the tax
savings to shareholders. On a sensitivity analysis, we estimate a 50% payout ratio
would boost our DPS forecast by 1.3cts to 18.4cts and 4.5% net yield.
� � Valuation: $4.50 price target based on DCF assuming 7.6% COE, 3% g
We believe DCF is valid given SMM’s strong cash flow and generous dividends.
JP Morgan on Sembcorp Marine
Price Target: S$6.70
3Q11 Review: " Songa Eclipse" helps earnings All
eyes now on Petrobras
3Q11 review: Sembcorp Marine reported an ‘in-line’ headline 3Q11 net
profit of S$222.5 mn (down 9%y/y) versus J.P. Morgan’s FY11E
estimate of S$683 million, with 9M11 accounting for 77% of our fullyear
estimate. Operating margins came in 18.1% in 9M11 (versus JPM
est. of 15.2% in FY11E) although revenues were down 17% in 9M11 as
nine JUs orders were still in the planning stage with only one rig
delivery in 3Q11 (Songa. Eclipse). We saw a 49% increase in net profit
q/q, driven by revenue recognition on Songa eclipse (70% of the rig
value was recognized in 3Q11 itself).
Key takeaways from analyst briefing: (i) 70% of Songa Eclipse’s
US$645 mn contract value was recognized as revenues in 3Q11 itself,
with margins on this vessel ranging 16-18%,(ii) 8 unit options remain
outstanding, (iii) management does not believe financing is a concern for
its clients currently, (iv) management retains its order target of S$4-5 bn
for FY11 (S$3.2 bn achieved to date), (v) deepwater rig enquiries remain
strong, (vi) management guided S$300-400 mn capex for each of the
next two years for Tuas yard, (vii) management targeting 12-15%
newbuild margin on rigs and (viii) management still considering special
dividend this year.
All eyes on the Petrobras tender, again: With submission of bids for
its 21 ‘new-build’ rigs by (i) Sete Brasil (21 rigs) and (ii) Ocean Rig (5
rigs) in early October, the near-term focus is likely to be concentrated on
the eventual award of these ‘new-build’ orders. We see Keppel Corp and
SMM well-positioned to win six rigs each amounting to ~S$4.7-5.5
billion (via their participation within Sete Brasil group). While the bid of
Ocean Rig may have thrown a spanner in the works (of award to Sete
Brasil), we remain confident of the eventual award to Sete Brasil.
Price target, valuation, key risks: SMM would be trading at 18.5x
FY12E earnings at our SOTP-based Jun-12 price target of S$6.70. Key
risks to our PT remain weaker-than-expected order book outlook, order
cancellations, and weak oil prices.
Price Target: S$6.70
3Q11 Review: " Songa Eclipse" helps earnings All
eyes now on Petrobras
3Q11 review: Sembcorp Marine reported an ‘in-line’ headline 3Q11 net
profit of S$222.5 mn (down 9%y/y) versus J.P. Morgan’s FY11E
estimate of S$683 million, with 9M11 accounting for 77% of our fullyear
estimate. Operating margins came in 18.1% in 9M11 (versus JPM
est. of 15.2% in FY11E) although revenues were down 17% in 9M11 as
nine JUs orders were still in the planning stage with only one rig
delivery in 3Q11 (Songa. Eclipse). We saw a 49% increase in net profit
q/q, driven by revenue recognition on Songa eclipse (70% of the rig
value was recognized in 3Q11 itself).
Key takeaways from analyst briefing: (i) 70% of Songa Eclipse’s
US$645 mn contract value was recognized as revenues in 3Q11 itself,
with margins on this vessel ranging 16-18%,(ii) 8 unit options remain
outstanding, (iii) management does not believe financing is a concern for
its clients currently, (iv) management retains its order target of S$4-5 bn
for FY11 (S$3.2 bn achieved to date), (v) deepwater rig enquiries remain
strong, (vi) management guided S$300-400 mn capex for each of the
next two years for Tuas yard, (vii) management targeting 12-15%
newbuild margin on rigs and (viii) management still considering special
dividend this year.
All eyes on the Petrobras tender, again: With submission of bids for
its 21 ‘new-build’ rigs by (i) Sete Brasil (21 rigs) and (ii) Ocean Rig (5
rigs) in early October, the near-term focus is likely to be concentrated on
the eventual award of these ‘new-build’ orders. We see Keppel Corp and
SMM well-positioned to win six rigs each amounting to ~S$4.7-5.5
billion (via their participation within Sete Brasil group). While the bid of
Ocean Rig may have thrown a spanner in the works (of award to Sete
Brasil), we remain confident of the eventual award to Sete Brasil.
Price target, valuation, key risks: SMM would be trading at 18.5x
FY12E earnings at our SOTP-based Jun-12 price target of S$6.70. Key
risks to our PT remain weaker-than-expected order book outlook, order
cancellations, and weak oil prices.
RBS on Sembcorp Marine
Buy - Target price S$7.00
Sembcorp Marine
Expect special dividends (3Q11 in line)
SMM's 3Q11 earnings came in line with our forecast with a run rate of 90%. We
expect the stock to continue to re-rate with order wins and on expectation of
special dividends given its net cash position worth 16% of market cap. We
maintain our Buy rating and our S$7 target.
3Q11 in line - saw booking of Songa Eclipse as expected
� � Sembcorp Marine (SMM) reported in-line 3Q11 results, with net profit coming in at 90% of our
2011 forecast - from higher than usual interest income due to recognition of Songa Eclipse.
� � Revenue rose 17% yoy on the back of resumption of revenue recognition upon completion
and delivery of the Songa Eclipse semi-sub rig (70% of US$645m booked) as well as higher
contributions from ship conversion and offshore projects (54% yoy), while EBIT margin
remained strong at 16%, but much lower than the 27% of 3Q10 due to the resumption of
margin recognition upon sale of CJ-70 rig at the time. 9M11 EBIT run rate is 82% of our full
year forecast.
� � Ship repair revenue is more or less flat for 9M11 at S$485m - revenue per vessel has
increased yoy.
� � Net income declined 25% yoy as a result of the high-base of 3Q10 created by CJ-70.
� � Net cash position excluding work in progress remains fairly strong at S$1.4bn with no debt.
� � Orderbook stands at S$5.2bn with deliveries stretching to 2Q14, new contracts secured
during 3Q reached S$566bn (12% of our full year forecast).
� � Year to date orders secured are 5 jack-ups and 1 CJ-70 rig worth a total S$1.9bn, excluding 8
options (2 from Atwood, 2 from Noble and 4 from Seadrill). Two options have a Dec 2011
expiry and the rest expire in 2012.
� � Ship conversion and offshore projects secured year to date stand at S$1.3bn. A total of
S$3.2bn contracts excluding ship repair has been secured in 2011 year to date.
Rig financing is not affected by the financial crisis, expect special dividend
� � Management will look at cash position at year and also M& A opportunities before deciding on
year-end dividend but there will be some special dividends this year too. For reference, SMM paid out 36 cents in DPS
Buy - Target price S$7.00
Sembcorp Marine
Expect special dividends (3Q11 in line)
SMM's 3Q11 earnings came in line with our forecast with a run rate of 90%. We
expect the stock to continue to re-rate with order wins and on expectation of
special dividends given its net cash position worth 16% of market cap. We
maintain our Buy rating and our S$7 target.
3Q11 in line - saw booking of Songa Eclipse as expected
� � Sembcorp Marine (SMM) reported in-line 3Q11 results, with net profit coming in at 90% of our
2011 forecast - from higher than usual interest income due to recognition of Songa Eclipse.
� � Revenue rose 17% yoy on the back of resumption of revenue recognition upon completion
and delivery of the Songa Eclipse semi-sub rig (70% of US$645m booked) as well as higher
contributions from ship conversion and offshore projects (54% yoy), while EBIT margin
remained strong at 16%, but much lower than the 27% of 3Q10 due to the resumption of
margin recognition upon sale of CJ-70 rig at the time. 9M11 EBIT run rate is 82% of our full
year forecast.
� � Ship repair revenue is more or less flat for 9M11 at S$485m - revenue per vessel has
increased yoy.
� � Net income declined 25% yoy as a result of the high-base of 3Q10 created by CJ-70.
� � Net cash position excluding work in progress remains fairly strong at S$1.4bn with no debt.
� � Orderbook stands at S$5.2bn with deliveries stretching to 2Q14, new contracts secured
during 3Q reached S$566bn (12% of our full year forecast).
� � Year to date orders secured are 5 jack-ups and 1 CJ-70 rig worth a total S$1.9bn, excluding 8
options (2 from Atwood, 2 from Noble and 4 from Seadrill). Two options have a Dec 2011
expiry and the rest expire in 2012.
� � Ship conversion and offshore projects secured year to date stand at S$1.3bn. A total of
S$3.2bn contracts excluding ship repair has been secured in 2011 year to date.
Rig financing is not affected by the financial crisis, expect special dividend
� � Management will look at cash position at year and also M& A opportunities before deciding on
year-end dividend but there will be some special dividends this year too. For reference, SMM paid out 36 cents in DPS
(8.8% yield at current share price) - we are expecting 17 cents on
which the yield is 4%.
� � Rig financing is not affected by the global financial crisis (European or otherwise).
� � Full year revenue for 2011 may come in lower yoy but this depends on revenue recognition of
existing projects.
� � Gulf of Mexico projects are recovering swiftly which bodes well for deepwater orders going
forward, while North Sea demand is also increasing with the new discovery by Statoil.
� � New yard capex for 2011 year to date is around S$150m - total would be about S$750m for
completion. For the next 2 years, the company expects S$300-400m in capex per annum
including maintenance capex.
� � Petrobras management visited the Singapore yards during Energy Week recently.
� � Normalised EBIT margin guidance maintained at 12-15% for rig projects, but 2011 EBIT
margin should be higher at 15-18%.
Buy on order momentum (target price S$7, 70% upside potential)
� � Both Keppel and SMM look attractive in terms of valuation - SMM's current 2012F PB is only
2.8x, far below the 6.5-8x seen in 2006-07, when orders were only 16% higher than our 2012
assumption. Keppel is trading at 2012F PB of 1.9x versus 3x seen in 2008 where order levels
were similar.
� � However, we still prefer SMM (Buy, target S$7) to Keppel (Hold, target price S$11.6) as
SMM, the pure play, tends to outperform substantially when order momentum improves and it
is more competitive in near-term bids now that Keppel's delivery times are stretched.
� � SMM has received orders equivalent to 58% of our 2011 order forecast of S$4.8bn (86%
including existing options), but Keppel is already exceeded its peak 2007 orders of S$7.4bn.
� � We expect order momentum to slow for Keppel in 2012F, while we see SMM's order
momentum continuing.
which the yield is 4%.
� � Rig financing is not affected by the global financial crisis (European or otherwise).
� � Full year revenue for 2011 may come in lower yoy but this depends on revenue recognition of
existing projects.
� � Gulf of Mexico projects are recovering swiftly which bodes well for deepwater orders going
forward, while North Sea demand is also increasing with the new discovery by Statoil.
� � New yard capex for 2011 year to date is around S$150m - total would be about S$750m for
completion. For the next 2 years, the company expects S$300-400m in capex per annum
including maintenance capex.
� � Petrobras management visited the Singapore yards during Energy Week recently.
� � Normalised EBIT margin guidance maintained at 12-15% for rig projects, but 2011 EBIT
margin should be higher at 15-18%.
Buy on order momentum (target price S$7, 70% upside potential)
� � Both Keppel and SMM look attractive in terms of valuation - SMM's current 2012F PB is only
2.8x, far below the 6.5-8x seen in 2006-07, when orders were only 16% higher than our 2012
assumption. Keppel is trading at 2012F PB of 1.9x versus 3x seen in 2008 where order levels
were similar.
� � However, we still prefer SMM (Buy, target S$7) to Keppel (Hold, target price S$11.6) as
SMM, the pure play, tends to outperform substantially when order momentum improves and it
is more competitive in near-term bids now that Keppel's delivery times are stretched.
� � SMM has received orders equivalent to 58% of our 2011 order forecast of S$4.8bn (86%
including existing options), but Keppel is already exceeded its peak 2007 orders of S$7.4bn.
� � We expect order momentum to slow for Keppel in 2012F, while we see SMM's order
momentum continuing.
It's true in previous cycle before the crisis...